On one side, general anesthetics and narcotic medicines are illegally distributed without control; on the other, a shortage crisis spreads because children's fever reducers are out of stock. They may look like separate incidents, but the pharmaceutical industry and experts say they stem from the "opacity of information" in Korea's drug supply chain. Even when production increases, medicines vanish on the ground—an irony rooted in a distorted distribution structure where more than 3,500 companies are scattered and tie up inventory. We conducted in-depth reporting with former and current industry insiders on the structural blind spots and remedies of Korea's festering drug distribution system. [Editor's note]
In 2007, an intriguing experiment began in the United Kingdom. Pfizer started shipping its medicines directly to pharmacies without going through wholesalers. This is the so-called DTP (Direct to Pharmacy) model. Wholesalers shifted to the role of logistics providers offering delivery services and earned profits on a fee-for-service basis.
In 2008, the Korean government sought to legislate a joint pharmaceutical logistics center. It prepared an amendment to the Pharmaceutical Affairs Act to allow drugmakers and wholesalers to jointly operate logistics. But the bill was never put to a vote and disappeared.
While the global drug distribution market has grown more efficient and consolidated over the past 19 years, Korea has remained at a standstill. The result has been recurring nationwide shortages of key medicines and incidents of lost narcotic drugs.
On Korea's drug distribution structure, Korean Pharmaceutical Association President Kim Hyeong-sik (professor, School of Pharmacy, Sungkyunkwan University) called it "distorted," noting, "Wholesalers are proliferating, and more recently even contract sales organization (CSO) outsourcing has expanded, fragmenting distribution channels and responsible managers, which could further increase side effects such as illegal distribution or abnormal transaction."
◇ The United States and Europe consolidate, Japan streamlines 94%… only Korea goes backward
In the United States, three large wholesalers—McKesson, Cardinal Health, and Cencora (formerly AmerisourceBergen)—effectively dominate a market worth about 500 trillion won. Specialty medicines are handled by separate, dedicated wholesalers under a segmented structure.
As of 2015, Europe operates 752 large wholesalers across the 26 EU countries plus Norway and Switzerland. By country, Germany has five, France three, and the United Kingdom three nationwide large firms. In the U.K., the DTP model has taken root, and an RWA (Reduced Wholesale Arrangements) approach has also emerged, in which drugmakers ship directly while wholesalers function as logistics agents.
Japan is the most dramatic case. The number of wholesalers, which exceeded 1,200 in the 1970s, fell to 440 in 1986 and 375 in 1991, then to 83 in 2014 and 69 in 2023. In 50 years, 94% disappeared.
Over the same period, Korea moved in the opposite direction. The number of wholesalers rose from 518 in 2000 to 3,516 in 2023—about a sevenfold surge in 23 years.
In the 1990s, the Japanese government pursued policies to curb medical spending. Continuous drug price cuts reduced wholesalers' profit margins. Small firms under management pressure opted to merge or were absorbed by larger companies.
The "new purchase price system" introduced in 1991 also played a major role. Previously, medical institutions negotiated prices directly with manufacturers and designated the wholesalers to deliver. That was abolished, and price negotiation rights were transferred to wholesalers. As wholesalers gained autonomy, efforts to strengthen competitiveness and consolidate accelerated.
Today, Japan's top seven wholesalers account for around 75% of total sales in the pharmaceutical wholesale market. As of 2022, their average distribution fee rate (margin rate) is 7.20%.
◇ Korea's distribution fee rate is 6%–9%… expert says "4% is excess"
The U.S. distribution fee rate is about 4%. U.S. wholesalers only handle logistics. They do not provide value-added services such as contract sales, promotion, or information gathering. Japan's 7% level includes comprehensive services on top of logistics, such as promotion to physicians and pharmacists, safety information collection and provision, and local prescribing and inventory information.
In Korea, estimates vary by study, but the rate is gauged at 6%–9%. It is neither logistics-only like the United States nor high value-added like Japan; instead, fees are tacked on in a middling state, splitting profits.
Lee Jae-hyeon, professor of pharmaceutical industry studies at Sungkyunkwan University, analyzed in a commissioned report for the Korea Pharmaceutical Distribution Association that "about a 4% level of inefficiency expense exists in Korea's drug distribution structure."
These expense items accumulate from multi-tier distribution and CSO costs, ultimately feeding into drug prices and National Health Insurance finances—in other words, the public burden.
Every attempt at structural reform has been stalled by pushback from the wholesale industry. In the early 2000s, the government built a comprehensive drug distribution information system to make every distribution stage transparent. But criticism of "overregulation" persisted, and with providers reluctant to disclose transaction records, low participation led to the system's suspension.
In 2001, 150 companies jointly funded a pharmaceutical logistics cooperative and even purchased a site for a joint logistics center in Anseong, Gyeonggi Province, but it was liquidated in 2004 after failing to align interests. In 2015, Hanmi Science entered online platform-based drug distribution through "Online Pharm (HMP Mall)." Then, too, wholesalers pushed back, saying it "threatens the ecosystem," and the corporations stepped back, easing the conflict for the time being.
◇ The missing command tower as authority is split among ministries
Critics say that even with a clear diagnosis of Korea's drug distribution structure, the prescription and treatment remain sluggish. Experts point to the lack of a framework to coordinate the actors who should solve the problem and the stakeholders.
In Korea, the control tower that aligns the interests of drugmakers, wholesalers, hospitals, and pharmacies is unclear. Authority and domains are split among the Ministry of Health and Welfare, which oversees drug pricing policy and distribution revenue structures; the Ministery of Food and Drug Safety, which handles approvals and quality control; and local governments, which have on-site oversight powers.
The Health Insurance Review & Assessment Service (HIRA) was presented with solutions in a 2024 commissioned study, including stricter approval criteria, stronger post-management of KGSP (Good Distribution Practice for pharmaceuticals), a wholesaler grading system, and mandatory e-commerce. The content is almost the same as a 2007 report, but none has been implemented to date.
Kim Dong-suk, professor of health administration at Kongju National University, who led the study, said, "The pharmaceutical market has significant information asymmetry, making it hard for price and quality competition to work directly," and noted, "Some drugs are exclusively handled by specific wholesalers, making it hard to persuade stakeholders, and since small-business livelihoods are also at stake, it is not easy for the government to tighten regulations."
She added, "An institution that holds drug supply data should serve as an information hub, while a governance body (consultative group) is needed to clearly allocate responsibilities and authority with agencies that hold quality, approval, and post-management powers." She emphasized that as a first step, "We must realize a next-generation drug information system platform and make supply chain-wide data transparent."
HIRA's Drug Management Integrated Information Center said on this point, "In November last year, we migrated the drug information system to a cloud platform," adding, "Based on this, we are upgrading our distribution information management framework." The foundation, in other words, is being strengthened. But critics say there is still a long way to go before achieving "on-site data linkage," cited as the most urgent task for accurate supply-demand forecasting.